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From the little time I have spent talking online with BSPS members, I have been impressed with the matter of fact way they are dealing with the choices presented to them.
Here is a case study of the complexity faced by one member of the scheme. Whether you are reading this as a steelworker or as a pension expert, think of this.
This person was not born to be a pension expert, he has had that thrust upon him.
His grasp of the salient facts of the situation shows that he has fully engaged with what he has been sent.
It is noble that he (and so many others) have got to grips with the choices (a word of commendation for the Trustee’s communications).
A message I received overnight
(I have slightly changed the words but not the numbers)
Just to give you an example of our current dilemma in real terms (my figures).
When I became a deferred member last year I had 21 years service working a 12 hour shift pattern.
On becoming deferred I lost an entitlement to what was known as 1 for 7. Basically for every 7 years service’ a member, I could retire a year early without loss of benefits. Although this benefit had stopped accruing, a few years previously, I had still achieved 2 years and should have had a full company pension at 63.
When I first received my deferred benefit statement it showed an annual pension of £13,500 and CETV of £120,000.
This year my annual pension increased to £14,000 and a CETV of £336,000 (with an 8% insufficiency reduction), Following the announcement of the RAA and cash injection, the reduction has now been reduced to 5% so my CETV has gone up to £347,000.
Here are my choices
Option 1 – remain in the BSPS and become a member of the PPF.
Here are my concerns with the PPF:
The PPF currently has 6,000 live DB schemes paying levies, 4,500 are in deficit. Is it a matter of time before the PPF folds in on itself and has to start reducing pensions payment.
I lose an immediate 10% but receive higher benefits for retiring early.
I get lower spouses benefits.
Option 2 – New BSPS
Here are my concerns with BSPS2:
I’m focussing on the 2016 accounts –
Benefits and expenses payable £676m.
Contributions received and ROI’s £321m. (£168m without contributions)
After speaking to a member of the Halcrow pension he feels like his scheme is unable to recover the deficit due to the low risk investment strategy.
Indexation capped at 2.5%
Fear that CETV’s could be reduced again at any time.
Early retirement reductions: 55 – £13,000, 60 – £17,175, 65 – £21,580
Option 3 – Transfer
I’m aged 47
Based on 3% growth at 55 I’d get £438,953
If I create own bridging pension
55 – 67: £24,378
67 – 90: £17,065 + SP £8,325 = £25,390
Additional benefit that pot carries over as inheritance.
Option to work days or part time 55 – 60 if pot has not achieved 3%.
How would you deal with organising this information?
My correspondent has not sent me the downsides of transferring ; I suspect he has read enough on my blog.
There are many things I don’t know, this gentleman’s dependants, his state of health, his current employment status and his willingness to work (part or full time) in the future.
Could I possibly advise him what to do? Of course I couldn’t.
Do I think he has made a proper analysis of his situation? I don’t know. I don’t know what choice he will make though I suspect he is leaning towards transfer.
What I do know is that he very politely pointed out to me that I was wrong in my previous blog (I should have known about the insufficiency report) and that he pointed this out with gentleness and kindness.
It strikes me that we are doing such people no favours , asking them to make choices like these. It is not – even was the “time to choose” longer – a choice that is within the financial capability of most people (whether steel workers or financial experts
Ask yourself ,
“how would you deal with organising this information so that you could take such a life-changing decision?”
Another message received this morning
As well as the message from the steel worker, I got a mail from someone who is a pension expert. He had read the results of the poll I mentioned yesterday
and this is what he wrote…
I cannot believe so many have IFAs an if they did not have one before that so many are willing to allow them to manage their pots.
Horrifying.
Proof that this scheme should be in the PPF.
If this goes badly I expect it to be the last such pissing around which the PPF will countenance. And if TPR wasn’t so full of deal-making ex bankers they would not allow it either.
Intermediaries and advisors taking the piss.
I didn’t change any of those words.
My five suggestions to Steel workers taking a decision
- Study http://bspensionschoose.com/ and your statement
- Do not get frustrated by the Helpline, it is what it is
- If you can’t get what you want from the helpline – go to TPAS (free, impartial and clued up)
- Use the Facebook pages if you are looking for an IFA, others have been there before you
- Read Angie Brooks’ blog if you are considering transferring – don’t get scammed
Further reading
Which is all well and good – as long as you have your information, thousands of BSPS members haven’t and it seems the Pensions Regulator is not too impressed.
For further reading on transfer issues, I would recommend Elliot Smith’s good article in New Model Adviser (BSPS section at back).
Henry,
Thank you for shining a light on these troubling times for our members.
In all communications prior to end August, BSPS members were told at the start of the letter that they did not have to take action and were just being informed. Then the letter went on to confuse many with possibilities and likelihoods.coated in financial jargon. But all through this one truth remained – the deadline for transfer to the new successor scheme or PPF assessment was March 2018. The Trustee yesterday confirmed that everything else was planned from this event so that BSPS did not have to pay an annual increase based on the current higher levels of benefit in April 2018.
I have seen examples from members like the well informed member above but most are only just finding out what the loss of the scheme they signed up for really means in pounds and pence. The choice is extremely importance of course and now we find lack of information in the packs, a pensions office overwhelmed by the volume of questions and requests for CETV’s and a deadline approaching fast.
The Trustees have posted the message “We are working to make sure we have all this information available before the new scheme starts paying benefits and the current scheme moves into the Pension Protection Fund.” So their priority is not running into April 2018 which would put an unaffordable burden on the fund and reduce the buffer for risks. A difficult balance to strike and one which is always biased away from the members.
I fear many will now take a judgment based on ‘gut feelings’ or an emotive reaction to get away from their perceived enemy. But as your article suggests, their future should be decided iby a careful study of the cold hard facts – if only the facts were available and they had time for study.
Let us also not forget those for whom the choice may be easy (the older pensioners and 22500 widows) who have Hobson’s choice of accepting BSPS2 and a 20% cost of living cut over the next 10 years.
Thanks Stefan – I can’t do much but sympathise, but I know that some of the people you speak with at BSPS and their advisers , do give a damn and care that members make the right choices. I read a good article this morning that shows that there are some journalists waking up to the dilemma you have
http://citywire.co.uk/new-model-adviser/news/unions-fear-members-targeted-by-advisers-for-db-pots/a1062418?ref=new-model-adviser-todays-news-list
Totally agree with Stefan
Would add that in my opinion the BSPS tended in their initial communications with members to bury within the detail / small print the stark fact that pre-1997 pensions would move from full RPi annual increases to virtually none at all: as Stefan says, very seriously eroding their future value / purchasing power.
Many former work colleagues are ex red card and even blue card managers yet had no idea what the proposed changes really meant to them and their pensions: having read the jargon-ridden communications and press releases from BSPS they were left none the wiser – just totally confused, Yes, those whose pensions are based on ore 1997 service face an invidious Hobson’s Choice between BSPS2 and the PPF. It may be that it was impossible to make it otherwise. But I personally don’t think so.
Lost within the maelstrom that this situation is fast becoming is the plight of approx. 30,000 deferred members who have contributed isignificantly to the BSPS but are still to see a return on their contrubutions.. Far too many are focusing on future incremental increases when the focus should be on the integrity of the BSPS in whatever form. Or maybe even the long term viability of the PPF considering the headwinds final salry schemes are facing.
The current situation affects far more than those who have already benefitted from the scheme. As a deferred member with almost 30 years service dating from 1973. Who has not received any relevant personal information from the scheme trustees to enable me to make an informed choice. I feel I have more reason than most to exhibit frustration at the way things have/ are being handled. The current situation should be about the larger membership and not seek to focus on any one grouping wiithin the scheme. Perhaps a little understanding from some quarters should be forthcoming. This situation affects all scheme members, incluing those actively contributing into the scheme and not just those currently receiving their benefits.
Marc, The retired pensioners are the only group who will not receive CPI increases for pre-1997 service. Deferred pensioners receive indexation for both BSPS2 and PPF. There is a separate argument we have been making about lack of info for deferred members and we have a group dedicated to members like yourself. So we have not forgotten about you but the pre-1997 affects retirees in either scheme after March 2018 only.
He needs to bring some structure in the analysis.
1. First, give the emotions away and forget the “nice” benefits he could have had under BSPS, 2 years early retirement before NRA with no reduction etc. Those have gone.
2. Second, he needs a personal recommendation to find out which of the two defined benefits scheme will be best for him. There are lots of things relevant here, from future employment prospects, own assets and liabilities, spouse own retirement arrangements, desired retirement age, health, need of PCLS at retirement etc.
3. Third, a good assesment of his risk capacity is needed. Less net assets and other retirement provision, less risk capacity. It seems that he has rather low risk capacity.
4. Compare the CETV with the option chosen at point 2. From the figures above, it is unlikely to result a transfer; I base this on a sustainable withdrawal rate (SWR) of 2.25% – 2.5% at the start of retirement at age 55.
Based on £430k funds (IFAs have an initial charge) and getting 4.25% – 4.5% gross per annum (1.25% – 1.5% per annum ongoing cost), he may be able to start benefits at £10,700 per annum (at the highest 2.5% SWR), well short of £13,000 per annum from BSPS2.
However this is not the relevant comparison, the relevant comparison should be done at the desired retirement age.
With regards if the new BSPS 2 scheme, it is hard to make assumptions of its viability, before knowing its assets and liabilities. To be viable, given the sponsoring employer cyclical business, it needs not to have more than 10,000 of the deferred members.
I would not be so concerned about the PPF, I do not think it will collapse, and if it does, it will be due to circumstances like UK (or US) defaulting on their debts etc, in these situations he will not be better if he transfers to a personal pension plan.
(This does not constitute financial advice, only an example of how comparisons would be made; personal circumstances and risk profile need to be acounted for before a personal recommendation could be made).
I quite agree with you Marc, for those in BSPS retirement the choices are relatively simple, for those faced with the choices you have, they are not. I worry that information on which you should take decisions is incomplete, that your deadlines are tight and that advice is in short supply.
Yes I agree, why restrict yourself to self imposed deadlines ? In this regard the situation is reminiscent of the headlong rush to trigger Article 50 before the government we fully prepared for the consequences.
I have now contacted the PPF, their response, sorry cannot help at this stage. Complained to the Pension regulator about lack of personalised information and contacted TPAS, still awaiting reply there.
One thing I shall not be doing after reading your excellent guidance is requesting a CTEV. The potential pitfalls are far too numerous while having the ability to reek financial ruin if not handled correctly. Not having a Facebook account I was not aware that so many members were considering going down this route. Surely it should only be considered as an option for a small, select number of members with certain, unique personal circumstances ?
Marc,
Dec 11th comes from working back from the true deadline which is March 31st. They need to get the schemes in place by Marc 28/29th they have said so they do not pay the RPI increase due on April 1st 2018.
Thanks for sparing me the rod of the regulators – I must be one of the few advisors singled out for giving “guidance” – very kind of you Marc!!
Tried to post a reply yesterday, but it did not show.
Sorry Eugen – thanks for re-posting – very helpful
The original post now appears on this blog Eugen, it was spammed (not by me but by wordpress – unfortunately I don’t have time to check the spam folder often (if at all) there are hundreds of posts that Askimet deals with this way – I’m sorry it made a mistake with yours.
I believe the member needs to leave the emotions away, there is no retirement at age 63 with no reduction of benefits.
He certainly needs pension advice from a regulated financial planer who (1) is a pension transfer specialist and (2) has a very good understanding of the issues surrounding the BSPS. Not last the charges should not be very high, a £2,000 fee for the advuce report, £5,000 for implementation if the transfer and no more than 0.75% per annum ongoing.
The adviser will need first to help this person based on his circumstances and preferences (desired retirement age, need for pension commutation at retirement etc) to determine which of the two options is best for him.
Afterwards, the adviser will need to compare the chosen option with the posibke benefits if he transfers the CETV to a personal pension.
Yes, at prima fascie, the CETV does not look enough to result in a transfer recommendation. Assuming the desired retirement age is 55, the £430,000 projected based on a 4.25% – 4.5% per annum gross investment return (IFA have an initial charge plus an 1.25% -1.5% cost of investnent ownership, including IFA ongoing charge) would not deliver the same retirement income as BSPS 2 i.e. £13,000 per annum. Buying a 2.5% per annum indexed pension annuity will result in around £8,200 per annum annuity.
Another option is to take investment risk in retirement and use drawdown. For a 55 years old the sustainable withdrawal rate (SWR) should be around 2.25% 2.5% at the start of retirement. That means around £10,750 per annum, still short of £13,000 from BSPS 2.
Probably the above comparisons need to be made at a diferrent desired retirement age. Things like when the mortgage is paid off, kids left their home etc are relevant issues.
The BSPS 2 scheme is an unknown entity at this moment. Personally I do not think that the sponsoring employer can take more than 10,000 deferred members, based on its cyclical business.
The concerns about the PPF are unfounded in my opinion. If the PPF goes bust then he will not be better off in any other options. With regards of the higher commutation and lower spouse pension (50% of the after-commutation pension), this is a trade-off that could work well in certain cases, including taking into consideration possible taxation issues. The pension transfer specialist should be able to advice.